Trailing 12 Months: What It Is, How to Calculate, and Examples
Summary:
Trailing 12 Months (TTM) is a financial term used to report a company’s performance over the past 12 consecutive months. This data offers more up-to-date insights than typical annual reports. Investors and analysts use TTM to calculate key financial ratios, such as revenue, price-to-earnings ratio (P/E), and yield.
Overview of TTM
Trailing 12 Months (TTM) refers to the time period covering the past 12 consecutive months of a company’s financial data. Unlike annual filings, which reflect the company’s performance for a fixed fiscal year, TTM is a rolling measurement, meaning it updates every month. This allows investors and financial analysts to access the most current performance data available, offering a clear and up-to-date snapshot of the company’s health.
TTM data is frequently used in key financial metrics such as earnings, revenue, profit margins, and more. It is commonly used by investors to assess growth trends and seasonally adjusted performance, helping them make more informed decisions when analyzing companies.
How TTM differs from annual reports
One significant advantage of TTM is that it provides more current data than annual reports, which may include outdated information. For instance, an annual report for the fiscal year ending in December 2023 may not be filed until early 2024, meaning the information can already be several months old. TTM, on the other hand, updates as new data becomes available each month. This ensures investors and analysts work with fresh information when making decisions.
Another key difference is that TTM doesn’t always align with a company’s fiscal year. It looks back at the most recent 12 months of data regardless of when the fiscal year ends. This makes TTM especially useful for tracking financial trends in dynamic industries where performance can fluctuate quickly.
Real-time performance insights
TTM allows for real-time tracking of a company’s financial performance, offering insights that traditional annual reports may miss. For example, if a company experiences a sudden spike in revenue or a decline in profitability, TTM figures can capture those changes more quickly than annual reports, allowing investors to react faster. This real-time data helps in assessing trends and adjusting strategies based on up-to-date information.
Seasonal adjustments
Many industries experience seasonal fluctuations, with certain times of the year being more profitable than others. Retail, for example, typically sees a boost in sales during the holiday season. By using TTM data, investors can assess performance without being skewed by these seasonal peaks or dips. It offers a balanced view of how a company performs over a full year, accounting for both busy and slow periods.
Comparison across sectors
Because TTM data is updated continuously, it allows investors to compare companies across different industries or sectors more effectively. For instance, if you’re comparing the TTM revenue of a technology company with a retailer, you can see how each performed over the same period, making it easier to benchmark their relative growth.
Key financial metrics using TTM
TTM revenue
TTM revenue is one of the most common metrics analyzed. It represents the total revenue a company has earned over the last 12 months. This is useful for tracking top-line growth and identifying revenue trends. Calculating TTM revenue involves summing the revenue from the previous four quarters.
Formula:
Example:
If XYZ Corp generated $50 million in Q1, $45 million in Q2, $55 million in Q3, and $60 million in Q4, its TTM revenue would be:
If XYZ Corp generated $50 million in Q1, $45 million in Q2, $55 million in Q3, and $60 million in Q4, its TTM revenue would be:
This figure allows investors to see the most up-to-date revenue performance and smooth out any seasonal spikes or troughs.
TTM earnings per share (EPS)
TTM earnings per share (EPS) shows the company’s profitability on a per-share basis over the trailing 12 months. It is calculated by summing the EPS from the previous four quarters.
Formula:
Example:
If XYZ Corp reported $1.50 EPS in Q1, $1.25 in Q2, $1.75 in Q3, and $2.00 in Q4, the TTM EPS would be:
If XYZ Corp reported $1.50 EPS in Q1, $1.25 in Q2, $1.75 in Q3, and $2.00 in Q4, the TTM EPS would be:
This number is a critical metric for investors looking at the company’s profitability trend over the past year.
TTM price-to-earnings (P/E) ratio
The TTM price-to-earnings ratio (P/E) is another key metric, calculated by dividing a company’s current stock price by its TTM earnings per share (EPS). This ratio helps investors determine whether a stock is overvalued or undervalued based on its actual earnings performance over the past 12 months.
Formula:
Example:
If XYZ Corp’s stock price is $100 and its TTM EPS is $6.50, the TTM P/E ratio would be:
If XYZ Corp’s stock price is $100 and its TTM EPS is $6.50, the TTM P/E ratio would be:
Investors often compare the TTM P/E ratio of a company with its peers to gauge whether its valuation is reasonable.
Pros and cons of using TTM
Calculating trailing 12 months (TTM)
Steps to calculate TTM
To calculate TTM, you need to aggregate data from the last four quarters or the last 12 months. The specific steps will depend on the metric you’re evaluating, such as revenue, earnings, or cash flow. Typically, the process involves either summing up the figures or taking a weighted or simple average.
Step-by-step process:
1. Identify the financial metric you want to calculate (revenue, EPS, etc.).
2. Obtain the data for each of the past four quarters.
3. Add the data together if summing, or compute the average for weighted metrics.
1. Identify the financial metric you want to calculate (revenue, EPS, etc.).
2. Obtain the data for each of the past four quarters.
3. Add the data together if summing, or compute the average for weighted metrics.
Example of TTM calculation
Let’s walk through a more detailed example of calculating TTM revenue:
Company ABC has the following quarterly revenues:
– Q1: $10 million
– Q2: $12 million
– Q3: $9 million
– Q4: $11 million
Company ABC has the following quarterly revenues:
– Q1: $10 million
– Q2: $12 million
– Q3: $9 million
– Q4: $11 million
To calculate the TTM revenue, you would add these figures together:
Thus, the company’s TTM revenue would be $42 million. This provides a complete view of the company’s recent top-line performance.
Conclusion
Trailing 12 months (TTM) offers an invaluable view of a company’s most recent financial performance, smoothing out seasonal variations and providing up-to-date data. For investors and analysts, TTM is a critical tool that helps assess growth trends, compare companies across sectors, and make informed investment decisions. While not without limitations, TTM’s ability to offer current insights makes it a popular choice for financial analysis.
Frequently asked questions
What is the purpose of using trailing 12 months (TTM)?
TTM provides a rolling view of a company’s financial performance over the past 12 months. Unlike static annual reports that reflect a fixed fiscal year, TTM captures the most current data by updating each month. This helps investors and analysts assess real-time trends and compare a company’s financial health with others in the same industry.
How does TTM help smooth out seasonal fluctuations?
Many businesses experience seasonal highs and lows, such as retail surges during the holiday season. TTM accounts for these variations by including data from all four quarters of a year, which balances the performance data and provides a clearer picture of long-term trends. This helps avoid skewed analysis from seasonal peaks or dips.
What financial metrics are commonly calculated using TTM?
TTM is used to calculate various financial metrics, such as revenue, earnings per share (EPS), price-to-earnings (P/E) ratio, dividend yield, and cash flow. These metrics help investors evaluate a company’s profitability, growth potential, and overall financial health based on the most current data available.
Is TTM relevant for small businesses and startups?
Yes, TTM is useful for businesses of all sizes. For small businesses and startups, TTM provides a continuous snapshot of growth and performance, helping these companies identify trends and adjust strategies accordingly. This is particularly important for startups, which may experience rapid changes in revenue and earnings within a short time frame.
Can TTM be used for financial forecasting?
While TTM is primarily used to evaluate past performance, it can also offer insights for forecasting future performance. By analyzing recent trends and smoothing out seasonal variations, TTM helps investors and managers predict future earnings or revenue trends. However, it’s important to combine TTM data with forward-looking indicators for more accurate projections.
How often is TTM data updated?
TTM data is updated monthly as new financial reports become available. This makes it one of the most current methods for tracking a company’s performance. Unlike annual or quarterly reports, TTM continuously rolls over the most recent 12 months of data, ensuring that it always reflects the company’s latest performance.
Key takeaways
- Trailing 12 Months (TTM) captures the most recent 12 months of a company’s financial performance.
- TTM is used to smooth out seasonal fluctuations and provide a real-time view of key metrics like revenue, EPS, and P/E ratio.
- TTM data is updated monthly, offering a more current snapshot compared to annual financial reports.
- Investors use TTM to assess a company’s growth trajectory and compare performance across sectors.
- TTM calculations are typically straightforward, involving adding or averaging data from the last four quarters.